Meyer lhm 2015 0925 sl

  • Published on
    23-Jul-2016

  • View
    212

  • Download
    0

DESCRIPTION

 

Transcript

www.macroadvisers.com www.twitter.com/macroadvisers The forecasts provided herein are based upon sources believed by Macroeconomic Advisers, LLC, to be reliable and are developed from models that are generally accepted as methods for producing economic forecasts. Macroeconomic Advisers, LLC, cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice. Laurence H. Meyer Senior Managing Director Global Interdependence Centers Central Banking Series Federal Reserve Bank of St. Louis September 25, 2015 What are They Waiting For? Why Not September? Recent global and financial developments are likely to put further downward pressure on inflation in the near term. -FOMC Statement, September 17, 2015 In light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the Committee judged it appropriate to wait forsome further improvement in the labor market -Chair Yellen, Press Conference, September 17, 2015 These developments have not led to a significant change in the Committees outlook for the U.S. economy. -Chair Yellen, Press Conference, September 17, 2015 September, 2015 1 2015 Macroeconomic Advisers, LLC *Bolding added by MPI Source: Federal Reserve. 2015 2016 2017 2018 Growth of Real GDP September Projections 2.1 2.3 2.2 2.0 June Projections 1.9 2.5 2.3 N.A. MA 2.3 2.5 2.2 N.A. Unemployment Rate September Projections 5.0 4.8 4.8 4.8 June Projections 5.3 5.1 5.0 N.A. MA 5.1 4.8 4.7 N.A. Core PCE Inflation September Projections 1.4 1.7 1.9 2.0 June Projections 1.3 1.8 2.0 N.A. MA 1.4 1.7 1.8 N.A. September, 2015 2015 Macroeconomic Advisers, LLC 2 Macro Outlook The Broad Contours of the Forecast Note: For FOMC projections, values correspond to the medians of FOMC participants' projections. Values are Q4/Q4 rates (growth and inflation) and Q4 averages (unemployment rate). Source: MPI/Macroeconomic Advisers, Federal Reserve. Basic Contours of Forecast Unchanged September, 2015 3 2015 Macroeconomic Advisers, LLC FOMCs Revision to Q4/Q4 Real GDP Growth Source: MPI/MA, Federal Reserve. FOMCs Revision to Q4/Q4 Core PCE Inflation -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 2015 2016 2017 pp pp -0.2 -0.1 0.0 0.1 0.2 2015 2016 2017 pp pp Gap Between Actual and Potential Growth September, 2015 4 2015 Macroeconomic Advisers, LLC Source: MPI/MA, BEA. 0 0.2 0.4 0.6 0.8 1 1.2 1.4 2014 2015 2016 2017 Percentage Points Gap Between Actual and Potential GDP Growth 2015 2016 Longer-Run MA 1.5 1.4 2.0 Board Staff 1.5 1.5 ? FOMC Participants ? ? 2.0 Forecasts for the Growth of Potential GDP Financial Conditions Deteriorate September, 2015 5 2015 Macroeconomic Advisers, LLC 1800 1900 2000 2100 2200 2300 2014 2015 2016 2017 Index H F S&P 500 current forecast last forecast 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 15:Q3 15:Q4 16:Q1 16:Q2 16:Q3 16:Q4 Percent different from June Forecast Revision to Nominal Trade-Weighted Dollar 0 5 10 15 20 25 30 35 40 45 50 55 60 15:Q3 15:Q4 16:Q1 16:Q2 16:Q3 16:Q4 Revision to BAA Spread Over Ten-Year Treasury Basis Point difference from June Forecast Source: MPI/MA. 80 85 90 95 100 105 110 115 120 2011 2012 2013 2014 2015 2016 2017 Index, 13:Q4 = 100 Nominal Trade-Weighted Dollar H F 80 85 90 95 100 105 110 115 120 2011 2012 2013 2014 2015 2016 2017 Index, 13:Q4 = 100 Nominal Trade-Weighted Dollar 40 50 60 70 80 90 100 110 120 130 2011 2012 2013 2014 2015 2016 2017 $ per barrel Brent Crude Oil Price H F Global Forces as Downside Risks September, 2015 6 2015 Macroeconomic Advisers, LLC 1.5 2.0 2.5 3.0 3.5 2012 2013 2014 2015 2016 2017 2018 Percent Trade-Weighted Rest-of-World Growth current forecast last forecast July 8, 2014 forecast -2.1 -1.8 -1.5 -1.2 -0.9 -0.6 -0.3 0.0 0.3 0.6 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Net Exports contribution to growth pp H F current forecast July 8, 2014 forecast last forecast 40 50 60 70 80 90 100 110 120 130 2011 2012 2013 2014 2015 2016 2017 $ per barrel Brent Crude Oil Price H F Source: MPI/MA. Source: MPI/MA, BEA. A Setback to Firming Core Inflation Core PCE in Hand at Next Two Meetings September, 2015 7 2015 Macroeconomic Advisers, LLC Core PCE Set to Rebound This Fall 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Percent, annual rate 6-month 12-month H F 6-mo 12-mo September 1.66 1.24 October 1.66 1.31 December 1.50 1.37 The Phillips Curve and Inflation Dynamics September, 2015 8 2015 Macroeconomic Advisers, LLC -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Percentage points H F Phillips Curve Projection/Decomposition of Core PCE Inflation inertia Pull from inflation expectations shock dollar Source: MPI/MA. slack oil 2014 2015 2016 Phillips Curve: = 3 3 + + 1 + Loss Function: = (6 6)2 + ( )2 What Does Full Employment Mean? September, 2015 9 2015 Macroeconomic Advisers, LLC Not Enough Improvement Yet! September, 2015 10 2015 Macroeconomic Advisers, LLC Source: MPI/MA, BLS. 0 2 4 6 8 10 0 125 250 375 500 625 2012 2013 2014 2015 2016 2017 Thousands Unemployment Rate (right axis) Nonfarm Payrolls avg. monthly change (left axis) Percent H F Unemployment Rate and NFP Growth Why Not September? September, 2015 11 2015 Macroeconomic Advisers, LLC While the unemployment rate is close to most FOMC participants estimates of the longer-run normal level, the participation rate is still below estimates of its underlying trend, involuntary part-time employment remains elevated, and wage growth remains subdued. -Chair Yellens Press Conference, September 17, 2015 *Bolding added by MPI Source: Federal Reserve. Whats Yellen Waiting For? September, 2015 12 2015 Macroeconomic Advisers, LLC Source: MPI/MA, BLS. -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Gap relative to 94-07 average Part-time Employment for Economic Reasons -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Gap relative to 94-07 average U3 U6 Gap Between U3 and U6 Continues to Narrow Whats Yellen Waiting For? September, 2015 13 2015 Macroeconomic Advisers, LLC Source: MPI/MA. 62 63 63 64 64 65 65 66 66 67 67 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Percent Labor Force Participation Rate H F Cyclical Rebound in Participation Rate to Slow Decline in the Unemployment Rate 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Percent Employment Cost Index H F Wage Growth Expected to Pickup FOMC Still Sees 2015 As Most Likely Liftoff September, 2015 14 2015 Macroeconomic Advisers, LLC Sources: MPI/Macroeconomic Advisers, Federal Reserve. -0.25 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2014.5 2015 2015.5 Median dots consistent with one 25-basis-point hike this year (most likely December) The dots indicate that 13 of 17 participants still expect a rate hike this year. Liftoff Probabilities September, 2015 15 2015 Macroeconomic Advisers, LLC Percent *Implied by fed funds futures quotes from September 21, 2015. Sources: MPI/Macroeconomic Advisers, Bloomberg At Which FOMC Meeting Is Liftoff Most Likely? 0 10 20 30 40 50 60 October December MPI Market* Market* MPI Liftoff Probabilities September, 2015 16 2015 Macroeconomic Advisers, LLC Percent *Implied by fed funds futures quotes from September 8, 2015. Sources: MPI/Macroeconomic Advisers, Bloomberg Whats the Probability of a Rate Hike by Each Meeting? 0 10 20 30 40 50 60 70 October December MPI Market* Market* MPI After Liftoff: Pace of Rate Hikes September, 2015 17 2015 Macroeconomic Advisers, LLC Three Views on Pace Source: MPI/Macroeconomic Advisers, Bloomberg, and Federal Reserve. Note: For each year in question, a dot represents an FOMC participant's view on the appropriate year-end value of the funds ratedark dots denote the median view. OIS forward rates are for the one-month rate at the end of the year in question. The MPI path is our expected year-end value. 2015 2016 2017 Percent OISMPI-10123452014 2015 2016 2017 2018 2019Longer Run*Bolding added by MPI Source: MPI/Macroeconomic Advisers, BLS, Federal Reserve End Game: Undershoot the NAIRU? September, 2015 18 2015 Macroeconomic Advisers, LLC -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1994 1997 2000 2003 2006 2009 2012 2015 Percent, 4th/4th H F Overshooting the (Core) Inflation Target? -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 1994 1997 2000 2003 2006 2009 2012 2015 Undershooting the NAIRU Percent H F A lot of people that are currently long term unemployed, theyve been out of work for a very long time. This is obviously very bad for them, but its also very bad for the economy as a whole. Allowing the economy to run a little hot would make it more likely that inflation would actually move up towards the 2 percent objective. And two, it would pull some of these long term unemployed back into the workforce. - President Dudley, October 6, 2014 Source: MPI/Macroeconomic Advisers, Federal Reserve How Does the FOMC Respond? September, 2015 19 2015 Macroeconomic Advisers, LLC -12.0 -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 1994 1997 2000 2003 2006 2009 2012 2015 Percent *The actual or prescribed fed funds rate (or its forecast) minus the estimate of the long-run fed funds rate (r* + 2%) at that time. H F Yellen (2012) Rule Gap Funds Rate Gap FOMC Raises Funds Rate Above the LR Equilibrium Rate The Buffer and the Inflation Objective September, 2015 20 2015 Macroeconomic Advisers, LLC Frequency of Hitting the Zero Lower Bound Size of the Buffer 2 3 4 Frequency 20% 9% 5% These probabilities are derived from Williams (2009). Williams used data from 1968-2002. Source: Williams (2009), MPI/MA. Buffer Frequency of Hitting the ZLB 2 2 4 5 1 2 3 9 1 3 4 5 2 2 20 3 3 9 4 4 5 These probabilities are derived from Williams (2009). Williams used data from 1968-2002. Combinations of r* and September, 2015 21 2015 Macroeconomic Advisers, LLC Source: Williams (2009), MPI/MA. Source: Federal Reserve. Bolding added by MPI. Statement of Strategy of Monetary Policy In setting monetary policy, the Committee seeks to mitigate deviations of inflation from its longer run goal and deviations of employment from its maximum level. These objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary, it follows a balanced approach in promoting them, taking account of the magnitude of the deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate - FOMC Statement on Longer-run Goals and Monetary Policy Strategy, adopted effective as of Jan 24, 2012, and amended effective as of January 27, 2015 September, 2015 22 2015 Macroeconomic Advisers, LLC